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SCORE DEBT COLLECTION BULLETIN #2

CREDIT TIPS & WATCHING FOR THE SIGNALS

Remember every sale is a bad debt until it is paid for!

We assume that you have opened an account with a debtor and have on record their written application for credit and have checked their authenticity (see Bulletin #1)

The purpose of this bulletin is to provide you with some tips on what to do or watch for to ensure you limit your bad debts and the need to use debt collectors to affect a debt recovery for you.

Establish a file for every debtor you have and use it to keep a copy of your credit application and every other aspect of things that we discuss below…

Taking Orders

• Proving a debt is the most common problem experienced by debt collectors.

• NEVER take an order only by telephone. It cannot be proven later.

• ALWAYS ensure that an order is written and preferably signed by the debtor. It should clearly identify what the order is for and the quantities required.

• ALWAYS confirm the debtors order in writing and provide a price quotation for the order. Ensure you get the debtors written confirmation that the price is accepted.

• If there are variations to the order later confirm those variations in writing and get a confirmation from the debtor in writing that includes acceptance of price variations.

• Written confirmations can be by email but hard copy is preferred.

• Watch closely for changes in the name of the business ordering from you. If it appears there has been a change then contact the debtor for clarification. A new credit application may be required.

Confirmation (of completion or delivery)

• Even if you have taken an order correctly (see above) the debtor may still challenge any debt recovery claim on the basis of delivery of the goods or satisfactory completion of the service.

• When goods are delivered a delivery confirmation (receipt) should always be gained. It should reflect the details of the order (or an order number), a statement that the goods delivered are in accordance with what was ordered; and should include the provision for date and a signature. The name of the person signing should be mandatory.

• When a service has been completed (e.g. a computer service, a kitchen renovation etc.) the debtor should be asked to sign-off on the job. The document they sign should include a date, details of the job performed (or reference to an order number), a statement on the document that the services have been satisfactorily performed or completed, and a signature. The name of the person signing should be mandatory.

• If these processes are followed the ability of a debtor to successfully defend a debt collection demand are significantly diminished.

Payment Trends

• You should constantly monitor the payment trends of your debtors. Any change in these trends should cause you to investigate and be wary.

• If for instance a debtor has been constantly paying you in 45 days on 30 day terms and suddenly the trend jumps to longer than 45 days it is quite probable that they are experiencing liquidity problems. If the trend blows out considerably we would urge you to stop providing credit or at least contact them and ascertain the reason for delayed payment.

• Alternatively if the debtor has constantly been paying you in 45 days on 30 day terms and suddenly you receive a payment much earlier it is quite probable that there has either been a change in ownership or an injection of cash funds. Either needs to be investigated.

Buying Trends

• You should constantly monitor the buying trends of your debtors. Changes can alert you to problems that may result in the need for debt collection.

• If a customer has been buying $2000.00 per month (or season etc) and suddenly you get a much larger order you should question this. Has there been a change in circumstances? Has the debtor been stopped from having credit from another supplier and hence ordered more from you? If the latter applies then you will probably have already been witnessing extended payment trends too. Suppling to a debtor who has slower payment trends and increased volumes should be considered with great care.

Cheque and Payment Details

• Always make a record of any cheques that you receive paying for the account and in particular the drawer’s name (exactly as displayed on the cheque) and any ACN or ABN numbers that appear. Also keep a record of the bank name, branch, BSB and Account Number.

• Often it is necessary to revert back to previous payments to establish the identity of the payer thus establishing evidence that they were doing business with you and in what name.

• The theory is that if they were paying for it then they were also buying it!

• Watch for any change in who is paying your accounts. A change of payer can often reflect a change in ownership or structure. If there is an apparent change contact the business and establish what has transpired. If there has been a change of ownership or structure then you may need to have the business re-apply for credit in the new name or structure.

Credit Checks

• When you first open an account it is advisable to undertake a credit check on them to ensure that there is no adverse credit history.

• There a number of credit information providers operating in Australia. Just Google “Credit Checks” and you can start from there or contact us on 1300 729 809 and we can point you in the right direction.

• Credit checks should also be considered where payment trends have slowed, or buying trends are greater than normal.

• If there is adverse credit history do not open an account or extend further credit. If you must continue to supply do it on a strictly cash basis (do not take cheques for cash supplies).

Placing accounts for debt collection - timing

• If a debtor is not paying you the chances are they are not paying others either!

• Debt recovery success often depends on timing, the closer to the ‘front of the queue’ the more likelihood of success. The longer you wait gives other creditors more time to collect their debts and by the time you start your action there is’ no pie left’.

• Do not stall on placing accounts with your debt collectors in the hope of perhaps being paid later. Better to place the account early and at least optimise your chances of a positive result. All too often we see accounts being placed when they are well overdue, such a decision can be costly.

• As a general rule wait no more than 2 months overdue i.e. at 90 days on a 30 day account.

Account Reconciliations & Short Payments

• Keep a reconciliation of invoices and payments for each debtor. (Accounting packages like MYOB & Quicken do this automatically).

• If a short payment is made on debts ensure the amount paid is allocated against the invoice concerned. Contact the debtor immediately to find out the reason for the short payment and deal with it immediately. Either record as credit against the invoice (where applicable) or have the debtor pay the short payment immediately.

BE AWARE THAT THE ONUS IS ON YOU TO PROVE YOUR DEBT WHEN ISSUING DEBT COLLECTION PROCEEDINGS. FOLLOW THE PROCESS ABOVE AND A SUCCESSFUL DEBT RECOVERY SHOULD BE IMMINENT.

Feel free to call us on 1300COLLECT (1300-265532) if you require assistance or email us at [email protected]